Colorado Subordination of Lien (Deed of Trust/Mortgage) is a legal process that involves the prioritization of liens or mortgages on a property. When a property is sold or refinanced, the original lien holder may agree to subordinate their lien, meaning they agree to let a new lien take priority over theirs. In Colorado, there are two main types of subordination agreements: voluntary and involuntary. Voluntary subordination refers to when the lien holder willingly agrees to allow another lien to take priority. This may occur when a homeowner wants to refinance their mortgage to get a better interest rate or when they want to take out a home equity line of credit (HELOT) to fund home renovations or other expenses. On the other hand, involuntary subordination occurs when the property owner fails to pay their taxes or homeowners association (HOA) fees, leading to a tax lien or HOA lien being placed on the property. In this case, the lien holder whose interest in the property predates the unpaid lien may agree to subordinate their lien, allowing the new lien to take priority. This typically happens if the lien holder believes that the property is likely to be sold, and they want to ensure their lien remains attached to the property. To execute a subordination of lien in Colorado, the involved parties need to draft a formal agreement that outlines the terms and conditions of the subordination. This document is typically prepared by an attorney or a title company to ensure its compliance with Colorado real estate laws. The agreement should clearly state the identities of the parties involved, the description of the property, details of the liens being subordinated, and the order of priority between the liens. It is also crucial to have the agreement notarized and recorded in the county where the property is located to make it enforceable and provide notice to future buyers or lenders. In conclusion, Colorado Subordination of Lien (Deed of Trust/Mortgage) is a legal process that involves the prioritization of liens on a property, either voluntarily or involuntarily. This process can be complex and should be handled with the assistance of a qualified attorney or title company to ensure compliance with applicable laws and to protect the parties' interests. By utilizing a subordination agreement, property owners can navigate the complexities of multiple liens and secure favorable refinancing terms or funding options.
Colorado Subordination of Lien (Deed of Trust/Mortgage)
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FAQ
The new lender prepares the subordination agreement in conjunction with the subordinating lienholder. Then, the parties typically sign the agreement. But in some cases, just the subordinating lender will need to sign the paperwork.
Example of a Subordination Agreement A standard subordination agreement covers property owners that take a second mortgage against a property. One loan becomes the subordinated debt, and the other becomes (or remains) the senior debt. Senior debt has higher claim priority than junior debt.
To adjust their priority, subordinate lienholders must sign subordination agreements, making their loans lower in priority than the new lender. A subordination agreement puts the new lender into first position and reassigns an existing mortgage to second position or third position, and so on.
Key Learning Points. Lien subordination takes place when two or more senior tranches of debt each have a lien on the collateral, but one tranche has first priority while the second has a residual claim. These are referred to as first lien and second lien.
When you get a mortgage loan, the lender will likely include a subordination clause essentially stating that their lien will take precedence over any other liens placed on the house. A subordination clause serves to protect the lender if a homeowner defaults.
A subordination clause is a clause in an agreement that states that the current claim on any debts will take priority over any other claims formed in other agreements made in the future. Subordination is the act of yielding priority.
Since it's recorded after any HELOCs or second mortgages you already have in place, the first mortgage would naturally take a lower lien position. Most lenders won't allow this, so this could cause you to lose your loan approval if the second mortgage holder won't agree to subordinate.
The creditor usually will require the debtor to sign a subordination agreement which ensures they get paid before other creditors, ensuring they are not taking on high risks.
